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Monday, 26 November 2018

Starwood Property Takes Down Vertical, Horizontal Risk Pieces of Latest CMBS Conduit

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Commercial Real Estate Direct Staff Report

Barclays Capital has launched an $891.85 million CMBS conduit transaction that includes an unusual twist.

Starwood Property Trust, which owns special servicer LNR Partners, is responsible for the deal's risk-retention requirement. It's doing that by buying both a vertical strip, comprised of 3.83 percent of each of the deal's bond classes, and a horizontal strip, comprised of 3.36 percent of the deal's most junior bonds. Because those bonds sell for a discount to their face value, the overall value of what Starwood is taking down is equal to 5 percent of the deal's market value.

Risk-retention rules mandate that issuers retain a 5 percent vertical strip of bonds, a horizontal strip equal to 5 percent of a deal's market value, or a combination of both. Buyers must retain the assets for the life of the transaction.

What's happened so far is that issuers have taken down vertical strips of conduit deals, and traditional B-piece buyers, of which Starwood's LNR Partners is one, have taken down horizontal strips.

But because a horizontal strip typically amounts to more than 10 percent of a deal's bonds, by face value, the cash outlay is often sizable. So, deals sometimes have hybrid structures - a combination of both a vertical and horizontal strip. But it's been relatively unusual for the same party to take down the two pieces.

However, Starwood Property previously had partnered with Eightfold Real Estate Capital to take down the horizontal risk-retention bonds of JPMDB Commercial Mortgage Securities Trust, 2018-C8. Its LNR Partners operation had taken down the deal's horizontal strip. And Argentic Securities had taken the horizontal strip, representing 2.21 percent, of UBS Commercial Mortgage Securitization Corp., 2018-C11, as well as a vertical strip representing 7.03 percent of the deal's par value.

Through September of this year, 18 of the 31 conduit deals that had priced had horizontal risk-retention structures, six had vertical structures and seven had hybrid structures.

Separately, Rialto Capital Management earlier took down the vertical strip of CSAIL Commercial Mortgage Trust, 2018-C14, a $770.23 million conduit transaction that priced last week.

The transaction marks the first time this year that Rialto has acquired a vertical strip. Through September, it had acquired four horizontal strips totaling $278.5 million of bonds. It also bought the CSAIL deal's B-piece. Rialto contributed 12 loans totaling $109.7 million to the transaction's collateral pool. But it didn't originate them. Instead, it bought them from the conduit-lending arm of Benefit Street Partners and re-underwrote them before contributing them.

The conduit-loan contributions are the first for Rialto, which is being acquired for $340 million by Stone Point Capital. The Miami company, a unit of homebuilder Lennar Corp., operates a separate conduit-lending operation that long has contributed loans to transactions, but that's being retained by Lennar.

So far this month, seven CMBS transactions have priced, including four conduit deals totaling $3.8 billion. Total issuance for the year now stands at $70.2 billion, just more than 10 percent behind the $78.5 billion that had been issued last year through November.

Meanwhile, bond spreads have widened appreciably, with benchmark classes, those with 10-year average lives and the highest possible ratings, printing most recently at 95 basis points more than swaps. That's 5 bps wider than during the beginning of the month, when the Benchmark Mortgage Trust, 2018-B7, deal priced. The widening has been even more pronounced down the capital stack, with bonds rated A- widening to 220 bps more than swaps in the CSAIL deal from 175 bps in the Benchmark deal.

The Barclays conduit, BBCMS Trust, 2018-C2, includes loans contributed by Barclays, Starwood, KeyBank and Cantor Commercial Real Estate.

Comments? E-mail Orest Mandzy, or call him at (267) 327-4281.


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Additional Info

  • Syndicate to Realpoint: No
  • Subject: CMBS - non-deal specific (CMBS-G), Commercial MBS (CMBS)
  • Company: Starwood Capital
  • Private: No
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Data Digest







Top Bookrunners Domestic, Private-Label CMBS - 2017
Investment Bank #Deals Vol$mln MktShr%
Goldman Sachs 17.59 11,819.34 13.68
JPMorgan Securities 14.52 10,968.11 12.70
Citigroup 12.04 10,012.71 11.59
Wells Fargo Securities 14.02 9,936.06 11.50
Deutsche Bank 12.55 9,879.74 11.44




cppichart FP



CMBS 2.0 Spreads


Top CMBS Loan Contributors - 2017
Lender #Loans Vol$mln MktShr%
Goldman Sachs 146.89 11,719.34 13.63
JPMorgan Chase Bank 117.68 10,114.14 11.76
Deutsche Bank 198.48 9,689.97 11.27
Morgan Stanley 166.18 8,539.78 9.93
Citigroup 199.05 8,088.24 9.41





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